17 Short Questions and Answers on Business Environment


Such activities include exchange of goods and services on a regular basis and carry an element of risk and uncertainty.

Manufacturing, trading, mining, banking, transport, insurance etc are the different types of business.

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Business Environment:

Business Environment is the sum of several external and internal forces that affect the functioning of business. It includes factors outside the firm which can lead to opportunities for or threats to the firm.

Although there are many factors, the most important of the sectors are socio­economic, technological, supplier, competitors, and government.



It is a term from economics, to define the groups of some firms in oli­gopoly acting together. The cooperation in organisations forming cartel may be in form of deciding prices and plans.

Organisations may form open cartels known to general public or secret cartels not known to general public.

Competitive Environment:

Competitive environment refers to a collection of various firms with same, similar or substitute products/services/customers/resources or any other common area.


Demographic Environment:

The term demographics denotes characteristics such as age, income, education, asset ownership, home ownership, employment status, etc, of population in a area, district, country or in world.

Economic Environment:

The economic environment refers to the general economic situation in the region and the factors like conditions in resource markets (money market, manpower market, raw material components, services, supply markets and so on) which influence the supply of inputs to the enterprise, their costs, quality, availability and reliability of supplies.

Environmental Analysis:

Environmental Analysis refers to understanding the external environment, in terms of the opportunities and threats, and the internal environment, in terms of the strengths and weaknesses, to ensure survival, stability, growth and profitability of any organization. A systematic approach to understanding the environment is the SWOT analysis.

Environmental Scanning:

Environmental scanning or Environmental Monitoring is the process of gathering information regarding company’s environment, analyzing it and forecasting the impact of all predictable environmental changes.

It is very important because, success of a company depends largely on how a company can synchronise its strategies with its environmental changes.

Ethnic Mix:

It refers to the social value system of a population.

Five Forces Model:

Porter’s five forces model of competitive analysis is powerful and popular tool for assessing the main competitive forces in any industry and their strength and importance to an organization.

This model holds that the state of competition in an industry is the sum of competitive pressures operating in five areas of the overall market i.e. rivalry among current players, threat of new entrants, bargaining power of customers, bargaining power of suppliers, threats from substitutes.

Global Environment:

Global Environment refers to the environment in other countries all over the world. Today, economies are open which means they are interacting with economies of other countries. Hence, globalization has become a very important business strategy.

Globalization refers to the process of spreading out of one country to other parts of the world by removing political, geographical and other barriers among countries e.g. companies like Nestle, Cadbury etc have several manufacturing locations and markets around the world.


It is a set of companies with interlocking business relationships and share holdings. It is a type of business group where member companies prefer to do business with other keiretsu members, both when buying and when selling. It refers to a group of companies, usually in related industries who join for cooperation on specific terms.

Keiretsu members are peers and may own significant amounts of each other’s stock, common purchasing, common distribution channels or other functions in common and even have many board members in common.

Macro- environment:

It refers to all the factors which are general for all organisations, provide opportunity or pose threats to them and are relatively uncontrollable.

It includes Demographic, Economic, and Political-Legal cum Government environment, Socio-Cultural environment, Technological, Competitive and Global environment.

Micro- environment:

It refers to all the factors which are specific to an organization and impart strengths or cause weaknesses of a strategic nature. It includes market, organization, intermediaries, suppliers, consumer/customer etc.

Political-legal Environment:

Political-Legal Environment is a collection of factors such as the general state of politics, the degree of politicalisation of business and economic issues, the level of political morality, the law and order situation, political stability, the political ideology and practices of the ruling party, the purposefulness and efficiency of governmental agencies, the extent and nature of governmental intervention in the economy and the industry, Government policies (fiscal, monetary, industrial, labour and export- import policies), specific legal enactments and framework in which the enterprise has to function and the degree of effectiveness with which they are implemented, public attitude towards business in general and the enterprise in particular and so on.

Socio-cultural Environment:

Socio-Cultural environment is a collection of social factors affecting a business and includes social traditions, values and beliefs, level and standards of literacy and education, the ethical standards and state of society, the extent of social stratification, conflict and cohesiveness and so forth.

Socio-cultural environment consist of factors related to human relationships and the impact of social attitudes and cultural values which has bearing on the business of the organisation.

The beliefs, values and norms of a society determine how individuals and organisations should be interrelated.

Technological Environment:

It is a collection of technological factors affecting a business and includes scientific advancements and changes of manufacturing, banking, communication, entertainment and all other aspects of changing people’s life.

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